Why BHP Billiton Limited shares are at a two-year high

Credit: Lucas Walters

The strong run of the BHP Billiton Limited (ASX: BHP) share price continued during trade on Thursday.

At one stage the mining giant’s shares reached a two-year high of $29.54.

Why are its shares at a two-year high?

As well as its solid full-year result which saw revenue increase 24% and profit rise 192%, investors appear to be scrambling to get hold of the mining giant’s shares amid bullish forecasts for the global economy in 2018.

With the global economy predicted to grow 3.7% in 2018 by many economists and research firms, this will be the strongest growth seen in seven years.

Unsurprisingly this has led to a number of commodity price upgrades from brokers, leading many to believe that BHP Billiton, Rio Tinto Limited (ASX: RIO), Fortescue Metals Group Limited (ASX: FMG), and Santos Ltd (ASX: STO) are poised to deliver strong profit growth.

Is it a buy?

While all the aforementioned resources shares could potentially outperform the market next year, I still have a preference for BHP Billiton even though it is at a two-year high.

This is because I’m reasonably bullish on petroleum, iron ore, and copper prices in 2018. These three commodities accounted for 81% of its earnings before interest, tax, depreciation, and amortisation in FY 2017. So if they perform well then BHP Billiton’s performance should continue to improve.

Ultimately I expect this to lead to solid share price gains and an increase to its generous fully franked dividend next year.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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